Lithium And Gold: The Lone Victors In H1 2023 Commodities Market

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As we transition into the second half of 2023, it’s an opportune moment to reflect on the performance of the commodities market in the first half of the year. The interactive Periodic Table of Commodities Returns provides a comprehensive overview of this market. Interestingly, lithium and gold emerged as the only commodities to record positive returns in H1 2023.

Lithium: The Fuel of the EV Boom

Lithium, a lightweight metal indispensable for battery production, witnessed an increase of 10.81% in the first half of the year. This surge in lithium prices can be traced back to the escalating demand for lithium-ion batteries, driven by the exponential growth in electric vehicle (EV) sales.

The International Energy Agency (IEA) forecasts a robust 35% increase in global EV sales from 2022, with an estimated 14 million vehicles to be sold in 2023. This would elevate the global electric sales share to approximately 18%. China, the world’s largest EV market and the third-largest supplier of lithium plays a pivotal role in this growth. Tesla’s production in China surged nearly 20% last month, contributing to the company’s record-breaking quarterly sales.

The transition from combustion engines to EVs or hybrids by other car manufacturers, such as Lamborghini, has further amplified the demand for lithium. The Italian car maker intends to allocate a minimum of 1.8 billion euros ($2 billion) towards the development of a hybrid range by 2024 and aims to launch its first fully electric model by the end of the decade.

Gold: The Reliable Refuge Amid Economic Turbulence

Gold, the other commodity to record positive returns, rose by 4.93% in H1 2023. Its value was underpinned by a stable U.S. dollar, sustained demand from central banks, and its role as a portfolio diversifier, particularly during the mini-banking crisis in March.

The anticipated end to the Federal Reserve’s interest rate tightening cycle, coupled with a potential mild economic contraction in the U.S., has also buttressed gold’s performance. The World Gold Council (WGC) anticipates that gold will continue to be supported in H2 2023 by factors such as India’s stronger economy, potential Chinese economic stimulus, and continued hedging strategies.

Is an Economic Contraction Looming?

The Global Manufacturing PMI fell to 48.8 in June from 49.6 in May, marking the 10th consecutive month of contraction. This decline, driven by a reduction in factory output due to dwindling new orders and increasing pessimism, impacted key regions such as the U.S., the eurozone, Canada, Japan, and others.

This contraction was mirrored in the performance of other commodities. Commodities in agriculture experienced a decline of 5.77%, industrial metals saw a decrease of 9.55%, and energy commodities, encompassing oil and natural gas, fell by 11.56%.

The Future: Towards a Greener Horizon

Looking forward, global oil demand is projected to plateau over the next decade before entering a period of decline, according to a new report by BP. This trend is primarily attributed to the rise in vehicle efficiency and the adoption of alternative energy sources. While emerging economies are expected to sustain or marginally boost their oil consumption in the initial half of the projected period, this stands in stark contrast to the rapidly decreasing oil demand in developed nations.